Self-managed super funds: Benefits and risks of going solo

For the last few years, younger Australians have lead the charge when it comes to taking control over their superannuation with statistics from the Australian Taxation Office revealing that the median age of members of newly established self-managed super funds decreased to 48 years, compared to 59 years for all SMSF members.

There are now 577,000 SMSFs holding $622 billion in investments. More than 1.1 million Australians have now turned away from retail or industry funds with another $1.7 billion of fund outflow to self-managed superannuation funds for the quarter ending September 2016.

There is good news for both male and female SMSF members, with the average member balances for females now up to $498,000 and for males, $633,000. The female average member balance increased by 24 per cent over the five-year period, while the male average member balance increased by 17 per cent over the same period.

So while more Australians are taking control of their superannuation, here are just some reasons why over a million Australians are choosing to have their own super fund and some of the traps to avoid.

The control is with you

When you establish a SMSF, you become a trustee of the fund. You can decide on how much to contribute and where to invest those funds but you do have responsibilities so ensure you understand these and the rules.
Cost efficiency

Structured properly, an SMSF can be more cost effective than holding multiple superannuation funds. Ensure you do your figures first as typically larger balances will get more cost efficiencies.

Tax efficiency

You can minimise tax payable by utilising smart strategies tailored to specific members. Payment of tax can be deferred and if investing in shares, excess imputation credits are fully refundable to the SMSF.

Family fund

A SMSF is a fund where you can have up to four family members with pool funds and investments as opposed to each having a separate super fund. It is also one of the most flexible and tax-effective ways for a member to provide lump sums or income streams to his or her surviving spouse. Members will have different appetites to risk and ages may vary so ensure your investment strategy caters for this.

Flexibility

Multiple accounts can be established for a member in retirement and income options can be tailored specific to their needs.

SMSFs are not for everyone and you should seek professional advice to determine whether it is right for you and whether the benefits outweigh the costs. Typically the bigger your balance, the more cost effective they can become. Also keep in mind that not every financial adviser is licensed to advise in the SMSF area so ensure you speak to one who is.

As a trustee, there are a number of obligations you must meet and while some trustees go it alone, you need to have the time and skills to do it as breaching the rules can mean that you lose tax concessions and be heavily penalised.

Partnering with a professional financial adviser will help you determine the best investment strategy for your circumstances, monitor the compliance and guide you with what is and isn’t allowed under the legislation. Remember, your super funds should be managed professionally so seek the advice of a SMSF financial adviser who has the skills and experience in this specialised area to ensure your retirement is a long one.

This article also appears on the Sydney Morning Herald website